[Solved] Which of the following monetary policy actions is most likely to reduce demand-pull inflation? — Ans: Increasing the repo rate to make borrowing costlier | Economic Awareness

Economic Awareness - Sectors of Indian Economy

Which of the following monetary policy actions is most likely to reduce demand-pull inflation?

ADecreasing the bank rate to encourage investment

BReducing the cash reserve ratio to increase money supply

CLowering the statutory liquidity ratio to boost bank lending

DIncreasing the repo rate to make borrowing costlier

Step-by-Step Solution

Step 1: Understand monetary policy tools
Increasing the repo rate makes borrowing costlier, reducing money supply and demand.
Step 2: Analyze options
Reducing cash reserve ratio or statutory liquidity ratio increases money supply, fueling demand-pull inflation. Decreasing bank rate encourages borrowing, increasing demand.
Final Answer:
Increasing the repo rate to make borrowing costlier → Option D
Quick Check:
Monetary tightening = reduce demand-pull inflation ✅

Quick Trick: Higher repo rate controls inflation by reducing demand.

Common Mistakes:

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